March 9, 2022 - 12:30pm

In a perverse way, Russia’s illegitimate invasion of Ukraine on the 24th February has legitimised both the existence of Bitcoin and its case for a primary role in the global monetary system of tomorrow. Many are starting to call this era Bretton Woods III.

In a deliberate strategic move in 2018, and presumably to taper the consequences of future potential sanctions, Russia divested its US Treasury holdings and drastically reduced its reliance on dollar-denominated assets. But when the West levied harsh sanctions on Russia after it attacked Ukraine this year, Russia was unable to turn to reserves held at other central banks — the Bundesbank, for example, has blocked Russia from accessing euros on deposit with the German central bank.

With Russia unable to access central bank reserves, unwilling to hold US Treasuries, and aggressively buying gold to escape Western sanctions, the monetary system appears to be showing some signs of reversion.

Enter Bitcoin. While lacking the necessary market penetration and capitalisation to step in as the world’s new hybrid collateral/settlements network, Bitcoin’s golden era begins now. And thankfully, it’s not because Russia is deciding to use it. Across the border, Ukraine’s government became the world’s first to solicit donations in cryptocurrency, starting with a tweet (above) from the official state Twitter account telling users that Bitcoin and Ethereum donations would be accepted.

While Russia is still relying largely on its gold reserves and relationship with neighbouring China, other geopolitical players are looking at the fracturing of the monetary system with one eye on Bitcoin. El Salvador, a country without its own currency, was the first to declare Bitcoin legal tender with up to 2% of its reserves currently held in Bitcoin. Similarly, Vietnam and Ukraine are among the top countries for Bitcoin adoption last year (numbers one and four respectively) according to a recent study from Chainalysis. Meanwhile, adoption in Nigeria (number 6) has been accelerated by a steady devaluation of the Nigerian naira.

We are thus witnessing a transition in the global monetary system that has been accelerated by the Russian invasion of Ukraine. And although the volatility of Bitcoin remains a problem, for many countries it is a far safer bet than their domestic currencies.

Besides, its appeal is obvious: due to Bitcoin’s decentralised network of nodes and miners, and a tidal wave of computational energy to guarantee protection from state-level actors, Bitcoin is an apolitical force ideally built for a multipolar world. It could thus represent the world’s first neutral and globally recognised currency since gold. This is something that all countries should welcome.

Nik Bhatia is author of Layered Money and research publication The Bitcoin Layer. He teaches finance at USC Marshall School of Business.